U.S. Productivity Surges

The productivity of America's companies rose solidly in the opening quarter of this year, and new filings for jobless benefits plunged last week to their lowest level in more than three years, good news for the country's economic health.

The Labor Department reported Thursday that productivity — the amount an employee produces for every hour on the job — rose at a 3.5 percent annual rate in the January-to-March quarter, up from a 2.5 percent pace registered in the previous quarter.

The latest reading on productivity marked the best showing since the third quarter of 2003 and matched analysts' forecasts.

In a second report from the department, new applications filed for unemployment insurance dropped by a seasonally adjusted 25,000 to 315,000, for the week ending May 1. That marked the lowest level since Oct. 28, 2000.

The layoffs picture presented by the jobless claims filings looked better than economists had expected. They had forecast claims to dip to around 335,000 last week.

On the productivity front, efficiency gains are important to the economy's long-term vitality. They allow the economy to grow faster without igniting inflation. Companies can pay workers more without raising prices, which would eat up those wage gains. And productivity can bolster a company's profitability.

As profits improve, companies may be more willing to step up hiring and capital spending, key ingredients to making the national economy's recovery lasting.

Federal Reserve Chairman and his colleagues, in deciding Tuesday to hold a key interest rate at a 46-year low of 1 percent, said such low rates along with productivity gains are helping to support economic activity.

During the economic slump, gains in productivity came at the expense of workers. Companies produced more with fewer employees. Although companies are still cautious in hiring, they did produce more with modest increases to work forces in the last three quarters.

In the January-to-March quarter of this year, companies boosted output at a 4.9 percent rate, up from a 4.2 percent pace in the previous quarter. Workers' hours, meanwhile, rose at a 1.3 percent rate in the first quarter, following a 1.6 percent growth rate in the fourth quarter.

Companies' unit labor costs increased at a rate of 0.5 percent in the first quarter, after being flat in the final quarter of last year. It marked the biggest increase in a year.

The economy grew at a healthy 4.2 percent rate in the first quarter of this year, a slight improvement from the 4.1 percent pace registered in the previous quarter. Economists believe the economy is expanding at around a 4.5 percent to 5 percent pace in the current April-to-June quarter.

The nation's employment climate also shows signs of picking up. After months of sluggish payrolls gains, the economy added 308,000 jobs in March, the most in four years. While economists don't believe that pace can currently be sustained, many are calling for payrolls to grow by a net 168,000 in April, which would represent respectable job growth. The government releases the employment report for April on Friday.